Commentary

India mining bill a fresh blow to Vedanta

Commentary: After real-life ‘Avatar,’ another blow for Vedanta, miners

By

NickGodt

A previous version of this story misspelled the name of Vedanta Resources. The story has been corrected.

MUMBAI (MarketWatch) — Anyone who’s enjoyed taking their kids to see the movie “Avatar” might appreciate a draft mining bill making its way through India’s parliament. That is, unless they also own shares in India’s mining stocks, or those of London-listed Vedanta Resources PLC.

Vedanta (VED), founded and chaired by multibillionaire Anil Agarwal, last year became the poster-child of everything that’s gone wrong with mining in India.

Reuters

Indians protest the environmental impact of plans to build a steel mill in Orissa earlier this year. Such concerns have prompted India’s parliament to take up a bill that would force mining firms to share profit with people displaced by their operations.

Its operations in the state of Orissa and their impact on an indigenous tribe and other locals were described by many as the “real-life ‘Avatar’”, the popular 2009 sci-fi animated film by James Cameron, in which a native tribe is faced with annihilation because a multi-galactic corporation wants the precious minerals held in its sacred mountains and forest.

Vedenta and other miners in India now face a bill before parliament, which would have mining firms share their often-huge profits with people displaced by their operations.

Miners would have to pay the same amount they pay in royalty to the government, or about 10% of the price of the mineral being mined. Coal-mining firms would have to share 26% of the profit they make from their mining projects.

The draft bill still needs to be debated during the parliament’s monsoon session in August. But experts say it stands a good chance of becoming law with only minor changes.

Ever since the bill was approved by a council of ministers on July 15, mining shares have taken a tumble on the Bombay Stock Exchange.

Shares of Coal India Ltd. (533278), the largest coal miner in the world, have slumped 7%. Tata Steel Ltd. (500470) has fallen 5.6%, Jindal Steel & Power (532286) has lost 4%, and Hindalco Industries Ltd. (500440) is down 6%.

Asia Today: Apple in China

(2:36)

Apple is seeking to broaden the iPhone's availability in China by offering it through the largest mobile carrier, while a prominent Chinese government newspaper shut its investigative unit amid a clampdown on the media.

The bill, should it be implemented, could hit metal companies’ profits to the tune of 4% to 10%, according to estimates by Religare Capital Markets.

Real-life ‘Avatar’

As for Vedanta, it saw its shares slide more than 10% in London last week.

Vedanta is India’s largest mining company through various of its operations in copper, zinc, aluminum and iron ore. Its units include Sterlite Industries Ltd. (500900), which fell 7.% over the past week, as well as Hindustan Zinc Ltd. (500188) and Sesa Goa Ltd. (500295)

Last year, Vedanta suffered a big setback, with its shares plunging more than 40% when India’s environment ministry revoked its clearances to mine bauxite — used to make aluminum — in the Niyamgiri Hills in the western state of Orissa.

Those hills have long been home to the Dongria Kondh, one of the many tribes of Adivasis, or indigenous people, found throughout India.

Multiple reports from environmental and human rights groups, including Amnesty International, have documented at length the human and environmental damage the mine and its operation have caused.

A short documentary called “Mine: Story of a Sacred Mountain” also depicted how, much like in “Avatar,” the Dongria fought Vedanta and its plans for an open-cast mine in their most sacred mountain.

The Dongria’s beliefs in their mountain and its stones doesn’t come out of thin air. Besides its use to make aluminum, bauxite makes mountains porous reservoirs which help irrigate farmlands all the way to the south of Orissa. This, in a country where most of the population is employed in agriculture and lives on less than $2 a day.

Vedanta, meanwhile, posted revenues of $11.4 billion and profit of $770 million for the year ended in March, up 44% and 28% respectively from the year earlier, thanks to the global surge in commodities prices.

Mining in India

According to environmentalists and non-governmental groups, similar situations are replicated throughout India, and have often included the employment by corporations of paramilitary groups to “protect” their operations from angry displaced locals, be they some of the 100 million or so Adivasis of India, or other farmers.

“Whatever has been done with mining policy [in India] has been done very badly,” says Chandra Bhushan, deputy director general of the Center for Science and Environment (CSE) in New Delhi.

CSE believes there is a very good chance for the bill to be passed.

“There is a general consensus in this country across political lines, except for a few pro-industry groups, that there is a need for a mining overhaul that should put in place environmental and social safeguards,” Bhushan says.

The profit-sharing scheme, he says, should only apply to communities who agree to mining in their locality.

Government’s bid

The mining bill is also seen as a bid by the government to ease furor over land displacement in vast rural parts of India, which became a major political theme in state elections this spring.

Close to 60% of the population lives and works in rural India, while much of the emerging middle class tends to stay away from voting booths.

Mamata Banerjee, the fiery leader of the All-India Trinamool Congress Party, won the election to become chief minister of West Bengal on the promise to return land to farmers who were displaced to make room for a Tata Motors Ltd. (500570) auto plant.

But that is only one of India’s 28 states and seven union territories.

As for the top 18 mining districts in India, they have overwhelmingly tended to be in the poorest and most environmentally devastated areas of the country, clear evidence that they hadn’t benefited local populations, according to a CSE report on mining.

“This is also where extremism is quite high,” Bhushan says.

The Naxalites, who formed various left-wing militant groups in the states of Uttar Pradesh, Bihar, Jharkhand, West Bengal, Orissa, Chhattisgarh, Andhra Pradesh and Maharashtra, are themselves Adivasis who have gained rising local support amid the anger over land displacements.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.